Fannie Mae 2005 Annual Report Download - page 103

Table 13: Mortgage Portfolio Activity
(1)
2005 2004 2003 2005 2004 2003 2005 2004 2003
Purchases
(2)
Sales Liquidations
(3)
(Dollars in millions)
Mortgage loans:
Fixed-rate:
Long-term . . . . . . . . . . $ 60,267 $ 53,305 $ 98,474 $ 1 $ — $ 8 $ 55,427 $ 69,182 $135,002
Intermediate-term
(4)
. . . 18,824 23,470 56,591 9 — — 38,603 31,446 37,331
Total fixed-rate loans . . . . 79,091 76,775 155,065 10 — 8 94,030 100,628 172,333
Adjustable-rate . . . . . . . . 5,515 9,118 8,800 41 66 — 11,392 7,640 6,679
Total mortgage loans . . . . 84,606 85,893 163,865 51 66 8 105,422 108,268 179,012
Mortgage securities:
Fixed-rate:
Long-term . . . . . . . . . . 13,630 58,412 292,675 93,910 14,691 18,079 83,861 107,309 257,760
Intermediate-term
(5)
. . . 832 4,834 37,499 12,117 3,460 5,350 6,670 8,097 12,623
Total fixed-rate
securities . . . . . . . . . . 14,462 63,246 330,174 106,027 18,151 23,429 90,531 115,406 270,383
Adjustable-rate . . . . . . . . 46,359 109,339 31,720 7,562 161 1,283 51,165 24,785 6,756
Total mortgage
securities . . . . . . . . . . 60,821 172,585 361,894 113,589 18,312 24,712 141,696 140,191 277,139
Total mortgage portfolio . . $145,427 $258,478 $525,759 $113,640 $18,378 $24,720 $247,118 $248,459 $456,151
Annual liquidation rate . . 30.7% 27.9% 55.1%
(1)
Excludes premiums, discounts and other cost basis adjustments.
(2)
Excludes advances to lenders and mortgage-related securities acquired through the extinguishment of debt.
(3)
Includes scheduled repayments, prepayments and foreclosures.
(4)
Consists of mortgage loans with contractual maturities at purchase equal to or less than 15 years.
(5)
Consists of mortgage securities with maturities of 15 years or less at issue date.
Mortgage Investment Activity
Our mortgage investment activities during 2005 were conducted within the context of our capital restoration
plan, which was finalized with OFHEO in February 2005. The size of our net mortgage portfolio declined
20% during 2005 to $736.5 billion as of December 31, 2005, due to a significant increase in portfolio sales,
normal liquidations and fewer portfolio purchases. Lowering our net mortgage portfolio enabled us to achieve
our capital objective. On November 1, 2005, OFHEO announced that we had achieved a 30% surplus over our
statutory minimum capital requirement at September 30, 2005. OFHEO’s requirement that we maintain a 30%
capital surplus remains in effect at OFHEO’s discretion.
Competition for mortgage assets during 2005 generally increased the number of economically attractive
opportunities to sell certain mortgage assets, particularly 15-year and 30-year fixed-rate mortgage-related
securities, resulting in a sizeable increase in portfolio sales to $113.6 billion in 2005 compared with
$18.4 billion in 2004. These sales were aligned with our need to lower portfolio balances to achieve our
capital plan objectives. While portfolio liquidations in 2005 were comparable to 2004, portfolio purchases
were substantially lower in 2005 as compared with 2004 due to narrowing spreads on traditional fixed-rate
products as the yield curve flattened, as well as our focus on managing the size of our balance sheet to achieve
our capital plan objectives. Portfolio purchases totaled $145.4 billion in 2005 compared with $258.5 billion in
2004, and included a much lower proportion of 30-year fixed-rate assets than historical norms.
Our mortgage purchases in 2004 decreased by $267.3 billion, or 51%, from our purchases in 2003. In 2004,
spreads between our debt and mortgage assets were very narrow throughout the year, reflecting both strong
investor demand for mortgage assets from banks, funds and other investors. Accordingly, because fewer
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